What About Pay Plans?

Pay plans are a very touchy subject. I’m always being asked about pay plans. It’s often been said you’d be better off not to discuss religion, politics and let me add one more, pay plans. I’m feeling kind of froggy today so I’m jumping in.

There are as many different pay plans as there are dealerships. It’s fair to say that how sales people’s pay plans are constructed often depends on the dealer’s philosophy of doing business and of course the influence of his/her key managers.

Those philosophies were developed early on, based on the experience and success of the decision makers in their personal and business growth.

We tend to think that everyone thinks like we do, and so if the way we were paid when we started made us successful, then it will work for others along the way. Or we think it’s worked so well for the dealership over the years, why change?

Just because you’ve always done it “that way” and it got you to where you are today, doesn’t mean doing it “that way” will get you to where you need to go.

See how much of this rings true:

1. You’re paying a lot of flats.

2. You’re pricing your used cars (even new) online with killer prices designed to drive traffic to the front door.

3. You’re working harder and harder to hold the line on your pricing when the customer shows up.

4. Because of #2 and #3, your sales staff have very little control over gross profit. Certainly not like they did in the good old days.

5. You’re not a one-price dealer yet, but you’re moving more in that direction.

6. It’s becoming more and more difficult to hire people, especially millennials, willing to be paid on gross profit.

In today’s market, it doesn’t make much sense to continue to pay on gross profit. What does make sense is to move more to a volume-based pay plan.

Some of your concerns:

1. You’re afraid to change pay plans because you’ll lose some of your key people.

2. You’re afraid your sales person’s compensation percentages will get out of line.

3. You’re afraid gross profit will go further south.

Let me clear those concerns up for you:

1. Some of those key people will actually like the change. But, if you have some people that you’re concerned about, then tell them that if they sell the same number of units over the next 12 months as they did the previous 12 months and if they don’t make the same or more money that you will pay up.

2. If you do your homework, analyze your history, analyze your grosses, trends and really think it through, you won’t screw it up and get out of line.

3. Gross profit could very well get better. Yes, your management team will have to work harder and harder to hold the line on pricing. If we spent a little more time on selling the sales staff that we’ve got the price right, gross might just go up.

When you dissect all of this, it is not so much about changing pay plans that’s all that hard. It’s about changing the mindset and culture of your organization.

I’ve attached a spreadsheet that you can change around to fit your style. Might be worth your time to take a peek. That’s all I’m gonna say, Tommy Gibbs

Pay Plan In Excel